COLUMN-Elder poverty - however you measure it - is not going away
By Mark Miller
CHICAGO Feb 11 (Reuters) - "Without Social Security, nearly half of seniors would be living in poverty," President Barack Obama said last month, noting the 50th anniversary of the war on poverty. "Today, fewer than one in seven do. Before Medicare, only half of seniors had some form of health insurance. Today, virtually all do."
Is the war on elder poverty over? Fewer older Americans are poor than any other age group - we heard that often in retrospectives on the war on poverty, and it comes up often in debates about possible cuts to programs like Social Security and Medicare.
Fewer seniors fall into the federal government's official measure of poverty than younger Americans. The official poverty rate in 2010 for Americans over age 65 was 9.1 percent, much lower than the 15.1 percent rate for all Americans.
But the numbers mask a worrisome trend: Senior poverty rates are projected to rise in the years ahead. The only question is by how much.
A debate is taking shape in Washington over how to measure elderly poverty rates. Beyond the official numbers, the U.S. Census Bureau publishes a Supplemental Poverty Measure (SPM) that includes non-cash income such as as housing assistance, food stamps or energy subsidies. But some experts say both measures fall short by failing to adequately measure retirement savings.
Taking savings into account wouldn't affect poverty rates much for very low-income households, which tend not to have retirement savings and rely mainly on Social Security. But it would affect the number of older middle-class households considered at risk to be impoverished.
The SPM projects that the senior poverty rate will spike by 72 percent between 2010 and 2040, from 10.4 percent to 17.9 percent, says Karen Smith, a senior fellow at the Urban Institute. But that's misleading on both sides of the ledger, she says - it misses assets such as retirement saving accounts and housing, and liabilities such as taxes and health insurance premiums.
In a new study, Smith and two co-authors use a sophisticated income modeling program developed by the Social Security Administration to project elderly poverty incorporating all those factors. That model still shows senior poverty rising in the coming decades, but from a much lower base and on a less dramatic curve - from 5.9 percent in 2010 to 8.5 percent in 2040.
Even if the Census Bureau changes its poverty-measuring yardstick, the factors driving that increase underscore why this is no time to declare a truce in the war on elderly poverty.
SOCIAL SECURITY AND PENSION EROSION
Social Security benefits will replace a smaller share of income in the years ahead, owing to reforms enacted in 1983. Those reforms included the introduction of taxation of benefits for higher-income seniors and changes in cost-of-living adjustments. The big change was a gradual increase in the full retirement age from 65 to 67. Higher retirement ages act as a benefit cut, since they raise the bar for receiving full benefits, no matter what age you retire.
The National Academy of Social Insurance projects that in 2015, Social Security will replace 35 percent of the median worker's pre-retirement income at age 65 - down from 39 percent in 2002. And the replacement rate will fall further by 2030, to 31 percent.
Meanwhile, a greater share of Social Security benefits will be taxed in the future because the tax thresholds aren't indexed for inflation - more people will be subject to the tax as their incomes rise. In 2000, 39 percent of beneficiaries paid taxes on benefits; this year, it will be 55 percent and will hit 61 percent in 2030, according to Social Security Administration data.
At the same time, fewer households will be covered by defined-benefit pensions. Federal Reserve data shows that 18.3 percent of 55- to 64-year-old households had defined-benefit pensions in 2010, but the younger age groups coming up behind them are much less likely to be covered - just 10.4 percent of households age 45-54 had a defined-benefit plan, and the numbers fall sharply from there.
Healthcare inflation has outpaced Social Security cost-of-living adjustments for two decades. Medicare premiums, deductibles, co-pays and out-of-pocket costs for items such as long-term care, dental and vision care (not covered by Medicare) rose 34 percent from 1992 to 2010, to $5,197 in real terms, according to research by Social Security Works, an advocacy group.
The 2013 Medicare trustees' report projects that the program will keep eating a bigger portion of Social Security benefits - the average Part B plus Part D premium is projected to go from 11.2 percent of the average benefit in 2013 to 14.3 percent in 2030 and 15.6 percent in 2035.
SHIFTING RETIREMENT DEMOGRAPHICS
Unmarried people and members of minority groups will account for a greater share of retirees in the years ahead, and will enter retirement with fewer resources than married, white households. Black and Latino households are far less likely than their white counterparts to be covered by a workplace 401(k) or traditional pension, according to a recent report by the National Institute on Retirement Security, and two-thirds or more of minority households have no retirement savings.
There's also an aging effect related to the large baby boom cohort. "Seniors experience higher poverty rates at advanced ages," says Smith, "because they tend to have spent down their retirement savings. As boomers move into very old ages, they will have the effect of boosting the overall poverty rate."
The trends all suggest this is no time for a truce in the war on elder poverty. The irony in Obama's hat-tip last month to Social Security and Medicare is that he has been all too willing to embrace changes that would cut the value of both programs, tipping more seniors into poverty in the years ahead.
For example, the "chained CPI" formula for making annual cost-of-living adjustments to Social Security benefits would trim inflation adjustments by three-tenths of a percentage point annually, according to the Social Security Administration. The president also has proposed shifting a greater share of Part B premiums to seniors.
President Obama should remember the war on poverty next time those ideas surface in Washington.
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